Santana Rey has found that her line of computer desks and chairs has become very

Question

Santana Rey has found that her line of computer desks and chairs has become very popular and she is finding it hard to keep up with demand. She knows that she cannot fill all of her orders for both items, so she decides she must determine the optimal sales mix given the resources she has available. Information about the desks and chairs follows.

Santana has determined that she only has 1,015 direct labor hours available for the next quarter and wants to optimize her contribution margin given the limited number of direct labor hours available.

Determine the optimal sales mix and the contribution margin the business will earn at that sales mix. (Input all amounts as positive values. Omit the "$" sign in your response).

Desks Chairs Selling price per unit $ 1,125 $ 375 Variable costs per unit 500 200 Contribution margin per unit $ 625 $ 175 Direct labor hours per unit 5 hours 4 hours Expected demand for next quarter 175 desks 50 chairs

Explanation / Answer

Hi,

Please find the answer as follows:

Contribution at Optimal Sales Mix = 175*625 + 35*175 = 115500

Thanks.

Desks Chairs Sales 1125 375 Variable Costs 500 200 Contribution 625 175 Direct Labor Hours Per Unit 5 4 Contribution Per Labor Hour 125 43.75 Total Hours Required/Available 875 (175*5)
140
(1015-875)
Optimal Sales Mix 175 35

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